Money Laundering Is Big Business And Is Growing And Growing Day By Day, No One Knows With Certainty How Big It Is. The Traditional Banking Products Such As Acceptance Of Deposit, Lending Of Money And Transfer Of Funds Do Offer Vital Laundering Mechanism.
The Other Products And Services Are Exploited By The Criminals To Legitimize The Profit From Their Evil Trade. There Are Three Main Methods By Which Criminal Organizations And Terrorist Financiers Move Money For The Purpose Of Disguising Its Origins And Integrating It Into The Formal Economy.
The First Is Through The Use Of The Financial System; The Second Involves The Physical Movement Of Money (E.G. Through The Use Of Cash Couriers); And The Third Is Through The Physical Movement Of Goods Through The Trade System.
In Recent Years, The Financial Action Task Force Has Focused Considerable Attention On The First Two Of These Methods. By Comparison, The Scope For Abuse Of The International Trade System Has Received Relatively Little Attention.
The International Trade System Is Clearly Subject To A Wide Range Of Risks And Vulnerabilities That Can Be Exploited By Criminal Organizations And Terrorist Financiers.
In Part, These Arise From The Enormous Volume Of Trade Flows, Which Obscures Individual Transactions; The Complexities Associated With The Use Of Multiple Foreign Exchange Transactions And Diverse Trade Financing Arrangements;
The Commingling Of Legitimate And Illicit Funds; And The Limited Resources That Most Customs Agencies Have Available To Detect Suspicious Trade Transactions.
Letter Of Credit
This Instrument Has Long Been The Subject To Abuse By The Criminals To Suit Their Nefarious Activities. In Most Cross Border Trade Transactions, LC Are The Life Line Of The Banking Business, Financing Multimillionaire International Trades.
In Terms Of This Instrument, Banks Undertake To Pay The Amount Stated In The Document Or Accept A Bill Of Exchange Against Delivery Of Commercial And Shipping Documents Provided They Are In Conformity With The Term And Conditions Of The Credit.
Thus Banks Only Deal In Documents (UCP 600 Article #5)Specified In The Credit And Are Not Concerned With The Quality , Quantity ,Accuracy Or Even The Existence Of The Goods.
Gives This Situation ,It Becomes Absurdly Simple For Fraudsters/ Money Launderers To Assume The Roles Of Importers/ Exporters And Move Large Sums Of Illicit Money Through The Banking System Using Fake Documents Without Actually Shipping Goods Of Any Kind Or Description.
In This Valuable And Prime Business Of Banks, The Following Activities Are Required To Be Examined Closely To Determine Their Acceptability:
- An LC Inconsistent With Customer’s Business
- An LC Covering Goods With Little Or No Demand In Importer’s Country
- Documents Arriving Without Title Documents
- An LC Received From Drug Producing/ Dealing Countries
- Beneficiaries /Shipping Line Owned By The LC Opener (Chartered Party)
Millions Of Dollars Earned Through Illegitimate Means Are Legitimatized And Moved Across The LC Mechanism.
Some Bankers Are At Peace With Themselves When Customers Request For Fully Collateralize Lcs And Fail To Realize Why Customer S Should Offer Collateral For A Perfect Normal Banking Transaction.
Thus In The Name Of Providing Collateral, Illegitimate Money Is Deposited With The Bank, Which On Compliance Of The LC Terms Is Dutifully Utilize To Settle The LC Dues.
When Required, The Opener Is Ever Ready To Wave Discrepancies And Accept The Defective Documents.
Documentary Collection System
(The Most Common Method Of Export From Pakistan) This Offers A Less Sophisticated And Cheaper Mechanism To Launder Large Sum Of Illicit Money Through The Banking System.
In Documentary Collection Too, The Launderers Assume The Roles Of Respectable Businessmen Engaged In The Business Of Import/Export.
The Importer, Having Amassed Large Amount Of Illicit Wealth In A Bank Account Opened In The Name Of A Shell Company Or A Legitimate Business Of Sorts, Invites His Counterparts In Another Country To Draw Bills Upon Him Against Shipment Of Non-Existent Goods.
Sometimes, To Gives The Deal A Legitimate Appearance, Containers Are Booked With Empty Boxes In Order To Obtain Genuine Bills Of Lading. The Second Stage Is To Prepare Commercial Documents Which Are Then Presented To The Bank In The Exporter‘S Country With Or Without The Title Document.
The Exporter’s Bank Dutifully Presents The Documents To The Importer’s Bank And Seeks Settlement Either Direct Or Through Correspondent Banking System.
The Importer Happily Authorizes To Debit The Amount To His Amount To His Account And Thus Illegitimate Funds Are Officially Transmitted Through The Banking Channel To A New Destination, In Another Country.
Now These Funds, When Received At The Exporter’s End Are Perfectly Clean Funds Earned Through The Legitimate Export Business And Can Be Used For Investment As Clean Funds.